ANZ CEO Mike Smith has said that big banks will have to watch out for new low-cost competitors which will be able to offer cheaper products.

(Credit: Renai LeMay/ZDNet Australia)

Smith made the comments at a Senate inquiry into banking competition and regulation yesterday, saying that advances in online banking technology is giving smaller, quicker players an in-road to the Australian banking market.

"Look at ING Direct, you've got a bank which is essentially internet-based, you don't have any branches and therefore is providing a service with a tiny amount of the cost that we have and can therefore be much more competitive. I think other such situations will occur [more often]," Smith said.

Senator Nick Xenophon agreed, saying that big banks may be at a technological disadvantage next to smaller, more nimble online players.

"On the technology side, clearly the bigger you are, the more disadvantage you have in terms of technology because you're less nimble and have legacy platforms to connect everything with," Xenophon said.

"To some extent the technology is supporting competition from the smaller players and we have seen that in the past in the market," the senator added.

Xenophon added that the past decade of technological advances had brought new players into the fold, and would continue to do so over the next decade.

"The way we do banking in 10 years will be dramatically different to the way we do it now, just as we wouldn't have anticipated the way we do banking in this market. That will leave an avenue open for other competitors who we don't know about to enter the market," he said.

"If Google got up and said we are going to offer a savings account, for me that would be very difficult and confronting," RaboDirect general manager Greg McAweeney said at the time. "They are a non-traditional bank yet they have great reach, access, distribution and trust — they probably have more trust than most of the banks."

Commonwealth Bank executive general manager Kelly Bayer Rosmarin also said then that an online-only upstart could challenge the position of banks.

"There could be an interesting play to be made in a completely virtual bank that is appealing to a different generation of customer who is comfortable with a new form of interaction — a virtualising of services and new ways of managing and accessing money," Rosmarin said.

The ANZ CEO said yesterday that the true power of technology in competitive banking is yet to be fully realised. However, when asked if he would open a low-cost competitor like Qantas did with Jetstar, he replied in the negative.